OPEC Death Watch


A number of recent articles suggest that OPEC — that kleptocratic cartel that has artificially jacked up oil prices for so many decades — is in its death throes.

The cause is something upon which I have long commented in these pages: the roaring renaissance of the American oil and natural gas industry, a renaissance produced by entrepreneurial capitalism — as opposed to interventionist statism. While the Department of Energy funded wind and solar power, along with biomass and ethanol production, all of which together have accounted for only a tiny sliver of American energy production, and that only with massive subsidies and draconian mandates — private enterprise backed the winners: oil and natural gas.

But the recent dramatic increase in production and exportation was occasioned by Speaker Paul Ryan’s success in enacting into law the right of American energy companies to export those resources. This allows frackers (and ordinary drillers) to increase production, because they now have an unlimited world market within which to sell their products.

There's a roaring renaissance in the American oil and natural gas industry, a renaissance produced by entrepreneurial capitalism — as opposed to interventionist statism.

And this is already happening, as several noteworthy articles report. One is a Bloomberg report that of all countries, no less than the United Arab Emirates (UAE) — the fourth largest oil exporter in OPEC — is buying oil from shale wells in Texas. It turns out that the Texas crude is much “sweeter” (lighter and of superior quality) and more useful to the UAE’s refining than the local brand. The 700,000 barrels of oil that it is buying are their first purchase from us.

Bloomberg notes that while American exports to the UAE are not projected to continue, the explosion of American oil exports will. Shipments from America rose from a mere 100,000 barrels per day (BPD) five years ago to 1.53 million BPD in November of last year.

Besides increasing American exports of oil, the fracking revolution has reduced non-American imports to below 3 million BPD, the lowest level since data were first gathered 45 years ago. Our current net imports are only one-fourth of what they were in 2006, and we are likely to become a net exporter in about a decade — sooner, if ANWR is finally tapped, and new offshore areas are opened up for drilling.

The 700,000 barrels of oil that the UAE is buying are their first purchase from the US.

A second story reports the rapid growth in exports of domestically produced natural gas. It reveals that China has signed a long-term contract with Cheniere Energy — a major exporter of liquefied natural gas (LNG) — under which Cheniere will ship LNG from the Gulf Coast to China. Under this contract, Cheniere will provide 1.2 million tons of LNG annually to China, starting in five years, and lasting for 20 years after that.

And there is a third story, which notes that besides a rapid rise in American LNG shipments to China, we are seeing an explosion of exports of American crude oil shipments to that country. These exports have mushroomed from zero, before two years ago, to 400,000 barrels per day during the past two months. And again, if we bust open ANWR and the coastal waters of Alaska, such exports will increase even more quickly.

One nice side effect of this is that the more oil China buys from us, the lower our balance-of-trade deficit is with China. Two months ago our trade deficit with China was $25.55 billion. Last month it dropped to $21.895 billion.

Our current net imports are only one-fourth of what they were in 2006, and we are likely to become a net exporter in about a decade.

For the foreseeable future, of course, China will continue to buy most of its oil from Russia and the OPEC countries. But our share of the Chinese market will grow, for two reasons. First, at $60 per barrel, American crude is more than $4 cheaper than the benchmark (Brent) price. Second, while there are certain infrastructure bottlenecks that have to be overcome, they are being addressed. For example, while we don’t yet have ports capable of handling the biggest oil tankers (“Very Large Crude Carriers”), we have already started expanding one of the largest ports on the Louisiana coast.

All of this has added to the stress on OPEC that may result in its collapse as a cartel: the members of the cartel may go their own ways. The recent uptick in oil prices above the $60 per barrel range has helped OPEC find some relief. The recovery of the old price from its lows in the $40–50 range has two causes.

One is the meltdown of socialism in Venezuela, which has cut its oil production dramatically. Venezuela, a founding member of OPEC, is allocated by the Cartel to produce 1.97 million BPD. But the near civil war in Venezuela has dropped actual production to only 1.64 Million BPD. In fact, Venezuela’s production dropped by a whopping 30% last year alone. This is a steeper decline than that experienced by Russia when the Soviet Union broke up, and that experienced by Iraq following the 2003 invasion!

As noted by the Wall Street Journal article that I am referencing, the drop in Venezuelan petroleum output will likely continue, if not accelerate, because the nation is trapped in a vicious socialized spiral. As it exports less, it receives less foreign currency, which cuts its ability to buy food and other necessities that its own dysfunctional economy cannot produce, which in turn increases its hyperinflation and thus the political and economic failure. Moreover, Venezuela’s declining shipments of crude are deducted to paying creditors (such as Russia) and are in constant danger of being seized by creditors.

All of this has added to the stress on OPEC that may result in its collapse as a cartel: the members of the cartel may go their own ways.

In short, the ill winds that have so badly buffeted the hapless Venezuelan people have blown great good to the rest of OPEC. I suspect this is the real reason why Russia — no longer itself socialist — so strongly supports the Venezuelan socialist regime: it keeps a formidable competitor on the ground. The Russians want nothing so much as fair competition — the history of their Olympic teams shows that!

Speaking of Russia, the second major reason that OPEC has been able to keep the price of oil as high as it has recently (i.e., in the $60–70 per barrel range) is that so far Russia has stuck to its agreement with OPEC to hold down production. In early 2017, OPEC and Russia — which, while not a member of OPEC, is certainly an ally of it — agreed to cut back Russia’s production. This agreement has held up for thirteen months, now, and the Russians have signaled that they are inclined to keep to the bargain through the rest of this year and even into the first half of next year. However, the Russian oil oligarchs are expressing doubts about the deal — since Russia needs to maximize its income in order to arm itself maximally.

Vadim Yakovlev, deputy CEO of Gazprom Neft, the giant Russian oil company, has said that the company views the OPEC agreement as only temporary, and it irks the company to be forced to hold back production. Gazprom’s CEO Alexander Dyukov has said, “Following the OPEC agreement, instead of growing at eight to nine percent, we [Gazprom] have increased by just 4.5 to five percent. Which is, without a doubt, a negative factor for us.”

At this point, American production is a regulator of world prices: whenever the price rises much above $60, the industry jacks up production, and the result brings the price right back down.

It is clear that OPEC’s day of rule is coming to an end. America — already the greatest producer of oil and natural gas combined — is on track to become the world’s biggest oil producer this year. Energy research firm Rystad Energy estimates the US production will rise by 10%, hitting 11 million BPD. America hasn’t been the global leader since — 1975!

The report from which I have drawn that last piece of information notes that in 2015 the Saudis drove oil prices down to $26 a barrel. This lowered American production by 11%. But the American oil industry, not destroyed, became stronger — and more efficient, able to turn a profit with prices as low as $30 a barrel. While some experts are not so sanguine about the US becoming number one, it is clear that our production will continue to grow. At this point, American production is a regulator of world prices: whenever the price rises much above $60, the industry jacks up production, and the result brings the price right back down. A recent article spells this out — oil prices have been driven down by American production’s rise to a new high of 10.25 million BPD.

In sum, the days of OPEC — an evil cartel of evil states, from socialist Venezuela to religious-fascist Iran to duplicitous Saudi Arabia to revanchist neofascist Russia — are numbered. The free market will at last prevail.

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The Geo-Petroleum Order Overturned


Several recent articles point to the continuing rapid evolution of the world’s geopolitical order in regard to energy — what I dub the “geo-petroleum order”. The upheaval was caused by America’s resurrection as a dominant oil and natural gas superpower, which in turn was caused by the fracking revolution. This resurrection, I would suggest, has had two phases.

The first phase started in the 1990’s, when George P. Mitchel combined hydraulic fracturing (known for decades) with horizontal drilling. This technique — fracking, as it has come to be known — allowed oil production in America to grow like a bodybuilder on steroids. It grew linearly up about 50% between 2011 and 2015. This allowed the US to shrink steadily as a net oil importer. We are close to hitting the goal of zero net imports, which is to say we are close to energy independence. Moreover, fracking drove the price of oil down by something like two thirds, to the current range of $40 to $60 per barrel.

The introduction of that kaleidoscope creator of pointless boondoggles, the US Department of Energy, was another monumental mistake.

The second phase began when House Speaker Ryan managed — amazingly! — to get a bill through Congress allowing domestically produced oil to be sold abroad. And he got President Obama — no big fan of fossil fuels — to sign it into law. As I noted at the time, this was an astounding piece of work. It overturned a grotesquely stupid law (passed during the energy crisis of the 1970s) that forbade the sale of presumably scarce domestic oil abroad. It never occurred to the morons who enacted this law that it would discourage oil companies and innovators from finding different ways to extract oil here, and making them look abroad instead.

Parenthetically, I would suggest that future historians will record that it was primarily our own idiocy that caused our energy shortages during the period running from the OPEC oil embargo to the rapid rise of fracking — a period that saw the greatest transfer of wealth from the US to its enemies ever known, for which we were “rewarded” by terrorist attacks and Russian neoimperialism. The enactment of the aforementioned subhumanly stupid law prohibited the shipment of American-produced oil, incentivizing oil producers and innovators to focus on foreign oil production. The introduction of that kaleidoscope creator of pointless boondoggles, the US Department of Energy (DOE), was another monumental mistake. The projects it forced innovators to pursue exhibited a degree of asininity seldom exceeded in the private realm. These projects range from syn-fuels and geothermal energy to biomass and corn ethanol (the mother and father of all boondoggles) to solar farms and windmills that shred birds and produce expensive energy at the very times it is least needed. Another DOE achievement was killing of the fast breeder reactor, which would have taken the nuclear “waste” we have accumulated and use it as fuel.

The DOE should top the list of federal departments to be eliminated. And for those of you who are worried about a rise of ocean levels said to be caused by global warning, may I offer a helpful hint? Just create a US Department of Water Creation, and the ocean levels won’t just fall; they will simply dry up.

Development in ANWR will provide thousands of high-paying jobs and $60 billion in royalties for the state — some of which goes directly to the people of Alaska.

But I digress. The flawed tax bill recently passed by Congress and signed into law by the president contains a provision allowing limited drilling in the formerly locked away Alaskan National Wildlife Reserve (ANWR). ANWR — which is in the middle of nowhere, and protects nothing but mosquitoes — was created at a time of high oil prices, and with only one purpose: to deny oil companies the chance to develop a small piece of vast Alaska. ANWR was, of course, opposed by the great majority of actual Alaskans but favored by soi-disant “environmentalists” in Silicon Valley and Beverly Hills. But then, neither Silicon Valley nor Beverly Hills has Alaska’s unemployment rate, which is the highest in the nation. Nor do they have Alaska’s large budget deficit.

Development in ANWR will provide thousands of high-paying jobs and $60 billion in royalties for the state — which puts some of the funds in a master-fund, the income of which goes directly to the people of Alaska. ANWR will also rejuvenate the Alaskan Oil Pipeline, keeping that great project alive. Not bad, considering that the drilling will take place on less than 2,000 acres — which is one-hundredth of 1% of the ANWR reserve.

It has also been reported that the $3.8 billion dollar Dakota Access Pipeline — created to ship the burgeoning oil production from fracking operations in North Dakota — is delivering bountiful benefits after only six months of operation. Lowering the cost of shipping has caused an increase in production. October’s production hit 1.185 million barrels per day (BPD), which is about a 13% increase over the peak before the pipeline.

As a result, unemployment in North Dakota is exceptionally low (2.3% in November), state revenues rose by $43.5 million in the first five months since the pipeline opened, and the pipe is projected to deliver $210 to $250 million in extra tax revenue by the end of its first two years. That’s delivering the green!

Saudi Arabia is now looking to invest in — American shale operations! How the geo-petroleum worm has turned.

Speaking of green, there has been a bonus for the environment as well. The pipeline has eliminated about 83% of the train traffic carrying oil, with only two trains a day now needed to transport oil instead of the 12 needed before the pipeline. This dramatically decreases the chance of ecologically damaging oil spills, or hominid-damaging oil explosions when trains carrying oil crash.

Another encouraging report explores an unseen upside of the growth in American fossil fuel production. The domestic steel industry — long an industry under stress from foreign competition — is itself experiencing a rebirth. Both oil and natural gas are shipped mainly by pipeline (unless misguided environmental activists stop the projects) and the pipes aren’t made of wood; they’re made of steel. Recently the newer domestic steel plants have become dramatically more efficient and are increasing capacity in anticipation of the pipeline buildout.

One American steel manufacturer projects growth in domestic oil and natural gas for the next ten to 20 years. Shipments from American steel producers went up 5% in the first ten months of last year — not as good as the 15% experienced by foreign producers, but still on the right track.

Some American manufacturers worry that the domestic buildout in steel plants will lead to a glut. But research done by Pipe Logix estimates that the number of oil and natural gas wells increased by 60% in 2016 alone. Those wells, and the pipes that ship their products, both require steel. So the worry about a “glut” of domestic steel mills seems exaggerated.

The foxy frackers just tightened their operations and kept innovating, winding up with an amazingly flexible industry that remains profitable in a below-$40 per barrel environment.

The American fossil fuel renaissance is having an impact on our major oil competitors. There is fascinating news that Saudi Arabia is now looking to invest in — American shale operations! How the geo-petroleum worm has turned!

Specifically, Aramco — the Saudi state-owned oil company — has approached the Houston based natural gas producer Tellurian, looking to invest. Aramco is also looked at acquiring assets in the two huge fossil fuel basins, Permian and Eagle Ford.

Admittedly, these developments are only incipient. But the fact that the Saudis are knocking at the door marks a major shift. They realize that America — once a pitifully energy-dependent giant brought its knees by despicable dictators sitting on top of large oil reserves — is now the world’s biggest producer of oil and natural gas, eclipsing both the always-treacherous Saudis and the authoritarian Russians. If you add on our coal production, we completely eclipse other countries in fossil-fuel production.

How sad that is for oil potentates, socialist caudillos, and dictators in general, who got fat on oil at an over-$100 price!

Of course, while we are the world’s largest producer of oil and natural gas, we are still net importers, because we consume so much. But as we increase production, we will become a net exporter. And this is what the Saudis realize. Aramco already owns some refineries in the US (and elsewhere in the world), but all Saudi production of oil and natural gas takes place in Saudi Arabia. The new leader of the country (Crown Prince Mohammed bin Salman) plans to privatize Aramco, and the IPO shares would fetch a higher price if Aramco sites production here.

The Saudis have two other reasons for wanting to buy into US oil and natural gas production. First, they aim to understand better how fracking works in such nimble ways. A couple of years ago, the Saudis tried to drive the frackers out of business by jacking up their own production and thus driving down prices. For a while, the price of oil hit about $30 per barrel. This caused the Saudi government to hemorrhage foreign reserves, but the foxy frackers just tightened their operations and kept innovating, winding up with an amazingly flexible industry that remains profitable in a below-$40 per barrel environment. When the price drops that low, less efficient operations get closed, but they can be expanded again, in the blink of an eye, when oil goes over $50 a barrel. How sad that is for oil potentates, socialist caudillos, and dictators in general, who got fat on oil at an over-$100 price!

The Saudis envy this flexibility and deeply resent the fact that it will keep the price of oil below $60 a barrel for the indefinite future. Witness the Crown Prince’s attempt to seize the assets of corrupt relatives and get Saudis used to working, rather than living on welfare paid by the rest of the world.

The Russians have “kept up” with American technology since the time of Lenin, usually by stealing it.

The other reason the Saudis want to have operations here is that they want to shift from their reliance on their own oil to power everything. The world’s natural fossil fuel distribution has involved using oil to power transportation, but natural gas and coal to generate electricity — and coal is a much dirtier fuel. But Saudi Arabia’s own natural gas reserves — which are about equal to America’s — are sulfur-laden and hard to get out of the ground. So to convert its production of electricity to natural gas, the country would have to import 12 million metric tons of LNG annually. Extracting that here in America would make sense.

But I have another, deliciously rich, piece of news. It is said that imitation is the sincerest form of flattery. If that’s true our archenemy Russia is flattering us in the extreme. It is trying to develop its own shale.

Russia’s main shale formation — the Bazhenov formation — is the largest in the world. And Russian oil production is the largest in the world. But Russians are looking at oil fields that are six decades or more old, and have declining outputs. So they want to do what America did: recover peak production by means of fracking. The trick is to replicate America’s technological expertise. To this end, the Russian government — i.e., Putin and his corrupt cronies — is offering tax incentives for shale companies, and incentivizing cooperation among energy companies and research institutes to develop fracking technology.

Alexei Vashkevich, exploration director for Russian energy conglomerate Gazprom Neft, who conveniently worked on the North Dakota’s Bakken formation operations, assures us that the Russians won’t rip off American technology but will develop a totally different Russian technology.

Oh, please, Alexei — as if the new Russian 5th-generation fighter weren’t a direct clone of America’s F35. The Russians have “kept up” with American technology since the time of Lenin, usually by stealing it. Witness A-bomb plans stolen by spies, F35 plans, obviously filched by cyberspies, aka hackers, who use the computer and internet technology they stole from — Americans!

We should work to keep oil prices so low that they delay Russia’s massive military buildup.

The news article just mentioned observes that it will be, perhaps, another six or seven years before Russian fracking operations produce very much, in part because of the embargo placed on Russia when it dismembered Ukraine. But wait: if the Russian technology-to-be is going to be totally different from America’s, why would the denial of that technology hold back Russia’s development?

I think you can expect Russia to do three things in the immediate future.

First, you will see it unleash its hackers to steal massive amounts of American fracking technology. My advice to American fracking companies is this: If you haven’t done so already, set up encryption and other barriers to stop cyberspies from an orgy of theft.

Second, you should be prepared to see mysterious “environmental” groups spew colossal amounts of deceitful anti-fracking propaganda. These groups will be funded by Putin for the sole purpose of retarding America’s own fracking.

Third, you can expect a dramatic increase in Russian meddling with elections, here and in Europe, by feeding propaganda to news media and funds to political activist groups. They likely played a role in strangling Poland’s development of its own substantial shale formations — keeping Poland and the rest of Eastern Europe dependent on Russian natural gas and oil. No doubt they will try to elect anti-fracking candidates here as well.

My strong belief is that we should work to keep prices so low that they delay Russia’s massive military buildup. To do this, we need to open up more offshore sites, and more in Alaska, and push for the systematic exploration of the Arctic.

In this regard, there is some very recent good news. Secretary of the Interior Ryan Zinke has announced a plan that would overturn the Obama administration’s effort to restrict offshore drilling to only 6% of the American coastline. Under the new plan, fully 90% of offshore areas would be opened, in the largest sale of offshore leases in history. This is a huge new step towards the goal of making America, in Zinke’s words, “the strongest energy superpower.”

While oil company CEOs may fear a glut — and lower prices — consumers would welcome it.

This means that Southern California’s coastline would be open for offshore drilling for the first time since the late 1960s, when it was closed because of an oil spill in Santa Barbara. The East Coast offshore areas would also be reopened.

Naturally, environmentalist groups are already screaming. For example, Diane Hoskins of the activist group Oceana called the plan “absolutely radical.” This is to be expected. Democratic governors in several states (including California, Oregon, North Carolina, and Washington) also expressed complete opposition, and some Republicans became alarmed as well. Senator Marco Rubio and Governor Rick Scott both came out against drilling off Florida’s coastline.

Even oil companies have stated reservations, since they are now experiencing what they regard as a glut of oil. But while oil company CEOs may fear a glut — and lower prices — consumers would welcome it.

Zinke has pointed out that the plan will not be finalized until 2019, and only after comments have been received in public hearings around the country. While all that is pending, we can be thankful for inventive frackers and the prosperity they have given us.

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Frackin’ . . . Like the Doo-Dah Man


Recent stories in the wonderful Wall Street Journal give us the happy news that (while receiving no coverage from the mainstream media, of course) the fracking revolution rolls on.

The first story reports that American crude oil exports are accelerating to new highs, rapidly approaching as much as Kuwait currently exports. Amazing. As of last month, we were exporting 1,984,000 barrels per day (BPD), an increase of nearly 500,000 BPD from the week before, and up an astounding 684,000 BPD in May. Considering that Kuwait ships about two million BPD, this is great news.

Admittedly, the US is still a net oil importer. But we import almost all the decreasing amount of foreign oil we need from our great ally Canada — our great ally, unless President Trump pulls out of NAFTA.

This exporting craze will only continue to build — if we don’t try to destroy our fracking industry, and allow it to flourish.

The reason for this surge in US crude oil exportation is that American crude is relatively cheap. In the week in which the record in exports was set, the US crude price was nearly $7 per barrel cheaper than the world standard. This is a new record low during the period since the 50-year-old ban on oil exports was lifted a couple of years ago, thanks to the much-maligned Congressman Paul Ryan.

In the irony that is the mother and father of all ironies, the second biggest buyer of America’s crude oil is our devoted enemy, China, which now takes about 180,000 BPD from us, up almost 900% from last year.

This exporting craze will only continue to build — if we don’t try to destroy our fracking industry, and allow it to flourish. All it needs is to be left alone in the free market. If so, it will guarantee that we never see $100 a barrel oil again ever. Here I must give Trump his props — he has allowed fracking to go unmolested.

What the frackers have shown is a profound and continuing ability to innovate and lower costs, in the face of an attempt by OPEC, that rent-seeking cesspool of corruption, to drive them out of business by lowering prices. But it was the OPEC companies that were driven to the wall.

This is just more of the daffy Malthusian “peak oil” thinking we’ve heard before.

The Wall Street Journal reports that one of the biggest natural gas fields from a decade ago, the Haynesville Shale field in Louisiana, has been reborn. Ten years ago it was productive, but five years ago it was nearly played out. Yet this field has come roaring back to life. The number of drilling rigs has tripled in the past year, and the current amount of natural gas is up by 17% in the same period.

What has allowed this resurrection of gas fields is “refracking” — the process of using more sand and extending the wells further. In fact, the US Geological Survey now estimates that the Haynesville, Louisiana and adjacent fields hold 300 trillion cubic feet of natural gas. That is a 430% increase over its 2010 estimate.

Helping the process is investor recognition that natural gas has a bright future. The US Department of Energy projects that over the next quarter of a century or so, use of natural gas will outstrip that of all other fossil fuels, especially coal. Cheniere Energy has a large liquefied natural gas (LNG) plant and export facility in Louisiana. Additional LNG plants are being built in Louisiana, Mississippi, Texas, and even Maryland.

Natural gas is the “feedstock” in many industries — petrochemicals, plastics, and fertilizers, to name the biggest. Nearly 80 petrochemical plants are being built in the Gulf Coast region alone, where they will result in jobs, and the continued resurrection of Dixieland.

The major hurdles are an apparent fall in innovation in the fracking industry, wariness among investors, and rising labor costs.

The WSJ notes that some “experts” are worried that the export market will siphon off so much natural gas that prices will rise, hurting manufacturers that are now ramping up. This is just more of the daffy Malthusian “peak oil” thinking we’ve heard before. We can simply increase production of natural gas from all over the US — from the Dakotas to Pennsylvania to Texas — to meet the demand. All the while good paying jobs will be created, and our adversaries (such as Iran, Russia, Saudi Arabia, Qatar, and Venezuela) will be kicked in their teeth.

When will the “experts” finally wake up and realize that in a free market there is no “peak” anything — least of all oil and natural gas?

In fact, during the past year, Castleton Commodities International spent more than a billion bucks to buy 160,000 acres of Anadarko’s Haynesville land. For that it got an infusion of capital from Tokyo Gas America, the largest utility in Japan. This shows the true expert assessment of fracking’s value.

A third WSJ article amplifies the idea that the glut of US production is spooking producers. In other words, it’s such a bitch that prices are set by supply and demand! The piece notes that the growth in the number of rigs — typically used as a measure of future activity &‐ dropped from 20% for the preceding four quarters to “only” 6% in the third quarter of this year.

Many of the OPEC states (especially Saudi Arabia) need oil to be around $100 per barrel to keep their economies stable and their citizens quiet.

This shouldn’t cause any pain. With the buildout of American industry and the roaring appetite of East Asian consumers, demand will just keep increasing. The Journal notes that US oil production may surpass the supposed “peak oil” production of 9.6 million BPD set in 1970. The major hurdles are an apparent fall in innovation in the fracking industry, wariness among investors, and rising labor costs. But despite the slowdown in the increase of production, there is no decrease in production, and the Energy Information Agency expects American oil production to hit 9.69 million BPD at the end of the year. This, despite oil prices stuck at about $50 per barrel.

The last WSJ story that I want to mention points to the continuing geopolitical fallout from the growth of US oil production. It reports that continued low prices on world oil markets have led Saudi Arabia, Venezuela, and other OPEC members to push Russia — which, while not technically an OPEC member, is surely a fellow traveler — to continue to agree to the current limits on production.

The narrative here is as simple as it is delicious. In the face of the American fracking revolution — which dropped world oil prices from over $100 per barrel a few years ago to $50 and below — OPEC has tried to figure out what to do. Many of the OPEC states (especially Saudi Arabia) need oil to be around $100 per barrel to keep their economies stable and their citizens quiet. But Putin’s regime has used Russia’s oil wealth for a huge military buildup, and kept Russian citizens happy by using military power to conquer the Crimea and threaten the rest of the former Soviet empire. To keep this up, Putin is prepared to sell as much oil as possible, even at lower prices, to fund his mechanisms of corruption.

In 2017 Russia agreed with the OPEC strategy to cut back production by 2% to keep prices from plummeting further. While this production cut helped raise the world price of oil by about 13%, American fracking has kept the world price well below $60 per barrel. But Russia’s participation in continuing the cuts is unclear, to say the least. The current agreement ends in March 2018, and OPEC is pushing the wily Putin to agree to extend it. The Saudis are offering to set up a billion-dollar fund to invest in energy projects.

The US should open all the spigots and end net importation of foreign oil once and for all.

Putin so far remains noncommittal. He can see what is obvious, which the WSJ article notes: if OPEC succeeds in raising prices, American shale companies can immediately crank up their output, rapidly driving the price back down.

Now, whether the Russians are bluffing OPEC to get more concessions, or simply intend to cover their drop in revenue by increasing their own production, we will have to wait to see. But I think the US should open all the spigots and end net importation of foreign oil once and for all. The US should make our own oil a major export. This means: opening up more federal land for fracking and offshore drilling, opening up ANWR in Alaska, opening the East Coast for offshore drilling, and pushing to open up the Arctic for the rapid exploitation of the region’s resources.

I would suggest to Trump that he get over his fears about free trade agreements and cut a deal that would allow him to sign the TPP agreement, but with one new provision: the TPP members should agree that if the US can sell them oil and LNG at world market prices, they will buy from us. That would eliminate the trade imbalances that so anger Trump (though not economists, of course). It is, alas, very doubtful that Trump can grow that much in strategic thinking.

that the export market will siphon off so much natural gas that prices will rise, hurting manufacturers that are now ramping up. This is just more of the daffy Malthusian ‐

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Paul Ryan and the Extreme Populist Establishment


When it comes to the Republican Party’s base, there isn’t “an establishment” — there are two. The Realistic Conservative Establishment (the RCE) consists of those in power (in the media and industry) who speak to and for those Republicans who embrace free market capitalism and limited government (the free movement of goods, labor and capital globally). The Extreme Populist Establishment (the EPE) consists of those in power who speak to and for those Republicans who embrace populist economics (opposition to free trade, to immigration across the board, and to companies moving operations abroad to avoid America’s corporate taxation and regulation).

The two establishments are fighting to get the Republican base to nominate their preferred candidates and pursue their preferred policies. The focus now is on the presidential primary, with the EPE generally supporting Donald Trump, with the backup position of Ted Cruz or Ben Carson. The RCE support is split among the remaining candidates (except Rand Paul, who is more the libertarian choice). But nowhere is the split between the two Republican establishments more clear than in their respective treatments of one of the unsung heroes of our time, House Speaker Paul Ryan.

You should measure the success of a negotiation not merely against what you get, but against what you get facing the opposition you have.

Ryan only recently took over after then-Speaker John Boehner resigned from a controversial tenure, a bitterly disappointing one to the populist base and the EPE. After weeks of turmoil, Ryan reluctantly agreed to become speaker. He met with deep skepticism by the EPE. Now Ryan has accomplished several things, and the EPE has attacked him furiously. As a classical liberal, I am angry at the short-sighted EPE commentators attacking what I perceive as major accomplishments.

Consider Ryan’s recently negotiated budget deal. EPE hero Rush Limbaugh was outraged at it, saying it gave Obama everything, and the conservatives nothing, and opining that “what has happened here is worse than betrayal.” Others echoed this sentiment. But I contend that the Ryan deal is in fact a good one, especially considering the fact that the Democrats still have the power to stop bills in the Senate and hold the White House. I mean, Earth to EPE pundits: you should measure the success of a negotiation not merely against what you get, but against what you get facing the opposition you have. Let’s look at some of the major provisions of the deal so condemned by the EPE.

First, Ryan secured about $700 billion in tax cuts — extending some useful deductions and making some (such as the R&D tax credit) permanent. Oh, and the tax cuts include greater expensing of small business costs, and renewable energy credits are phased out.

The second major victory the Ryan deal won was an increase of $573 billion in spending for defense, and another $163 billion for veterans’ programs. To those of us who have voted Republican as opposed to Libertarian all these years, this is huge. Realist conservatives and classical liberals view defense as the most important function of the federal government, and while the previous “sequester” deal did lower the deficit, it did so by cutting defense spending massively. Would I have preferred that this increase in defense spending not been accompanied by increases in spending for pet Democratic social programs? Sure, but defense spending has been held hostage by the Democrats, with the ransom being increased domestic spending; and that won’t change until there is a Republican in the White House. Concession on this issue was what it took to secure Obama’s signature on the compromise deal.

The third victory achieved by the deal escaped notice by the EPE commentators as much as by the mainstream media (the Progressive Liberal Establishment). The deal puts major restrictions on the highly politicized and deeply corrupt IRS. These restrictions include forbidding the use of personal email accounts for conducting IRS business (Lois Lerner’s cute little trick), as well as barring the targeting of nonprofits based upon their political or other ideological beliefs. This was a deeply satisfying victory for those of us who feel we have been politically targeted by the IRS.

This asinine prohibition was passed by a Democrat Congress and signed into law by a Republican president nearly 40 years ago, in the middle of the oil crisis.

Of course, if the Republicans can elect a president this year, I would push for that president to appoint a special prosecutor to investigate Lerner — along with the dozens of IRS creeps who worked with her to annihilate the Tea Party — for violations of the civil rights of taxpayers.

But the fourth victory is one that is a profound gamechanger. It will transform not just the American economy but the politico-economic order of the whole world. Again, this victory escaped the notice of the EPE pundits no less than the mainstream media. Ryan’s deal amazingly succeeds in repealing one of the most idiotic laws ever passed — the law prohibiting American oil companies from exporting domestically produced oil. This asinine prohibition was passed by a Democrat Congress and signed into law by a Republican president nearly 40 years ago, in the middle of the oil crisis. Really, how stupid is it to attempt to get the country’s oil companies to drill for more oil — by walling them off from the world market? The policy guaranteed that the major oil companies would focus on oil exploration abroad. So it sent more American jobs abroad, made us even more dependent on foreign oil, and sent vast billions of dollars out of the country, to enrich our enemies. The ill-considered law no doubt delayed our oil fracking revolution by decades. Ryan’s compromise not only suspends this law, but permanently repeals it.

The elimination of the export ban is massive. We can now compete head-to-head with the Middle Eastern and Latin American oil states, along with Russia. We can help Europe become completely free from dependence on Russian energy, thereby dramatically weakening Putin’s power to cause mischief. By keeping world prices low, we starve Putin of petro-dollars with which to build up his military. In fact, the continuing low price of oil has drained Russia’s reserve fund by 30%, and it is projected to be empty by the end of the year. We can become Asia’s number one supplier of fossil fuels, keeping our friends (Japan, Taiwan, and South Korea) close and our enemy (China) closer. Moreover, by selling them oil and natural gas, we can lower our trade deficit enormously. Finally, we can cut the Venezuelan socialist regime off at the knees.

Indeed, just a few days after the deal was signed, the first two tankers carrying American domestic crude for ports abroad. The first ship left Corpus Christi, Texas, bound for Trieste, Italy, loaded with oil drilled from the Eagle Ford Shale field by ConocoPhillips. The second ship left Houston carrying oil to Marseilles, France. The shipping should ramp up rapidly: the Corpus Christi terminal alone is capable of sending out 400,000 barrels a day (BPD) as is, and developments under way will boost that to 575,000 BPD in the near future. The CEO of ConocoPhillips suggests that the demand from foreigners for our oil will hit 2,000,000 BPD by 2020. If the price of oil recovers and moves into the $50 range, exportation should just explode. So much for “peak oil” and eternal dependence on the OPEC thieves.

We can now compete head-to-head with the Middle Eastern and Latin American oil states, along with Russia.

This is a success that was way beyond the dreams of us who believe that our fracking revolution will make us energy independent. But the only way to get anti-fossil-fuel Democrats in Congress and our global-warming-obsessed president to agree was to offer them all a lot of useless spending — such as renewing subsidies temporarily for unproductive forms of energy such as wind and solar power.

Of course, should the Republicans win the White House in 2016 and hold both chambers of Congress, these subsidies can be easily ended. But should the Democrats keep the presidency and take back the Senate — which they will surely do if Trump gets the nomination — it would be almost impossible for them to reinstitute the ban on exporting oil.

In fine, Ryan outfoxed the Democrats magisterially — amazing for someone who just stepped into the job.

What peeves the EPE commentators about the deal? Their stated objections are obviously weak. They complain that in the bill Ryan negotiated, ObamaCare was not eliminated, the taxes intended to pay for it (such as the steep tax on “Cadillac” health care plans) were deferred for two years, funding for Planned Parenthood was not ended, and the budget deficit increased. The replies are simple. If Ryan had put the elimination of ObamaCare in the bill, it would not have passed, or if it did, Obama would not have signed it.

Should the Democrats keep the presidency and take back the Senate — which they will surely do if Trump gets the nomination — it would be almost impossible for them to reinstitute the ban on exporting oil.

Ironically, soon after getting this bill done, the ever-clever Ryan was able to put through Congress bills repealing ObamaCare outright and ending funding of Planned Parenthood and place them on the desk of the president, who of course immediately vetoed them. Ryan thus kept his promise to force Democrats to vote publically on the issues, and put them on the desk of the president to veto. But for this, the long-time EPE pundit Lou Dobbs bashed Ryan, saying that getting those bills through Congress was mere theater.

What really angered the EPE crowd is that Ryan dared to cut a deal at all. The EPE crowd would rather be right than be president. And that’s the way they will continue to play it.

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Enemy of My Enemy


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Fracking Ferment and Malthusian Myths


The revolution in American oil and natural gas production brought about by fracking continues to roar. Recently, the price of oil dropped to about $65 per barrel, and natural gas is still hovering around record low prices. In fact, as an article in Bloomberg suggests, it is entirely possible that oil may sink to $40 in the near future.

All of this was unthinkable before the last couple of years, but thanks to the miracle of fracking, it is becoming reality. It is Schumpeterian creative destruction with a vengeance. But as the theory of creative destruction emphasizes, revolutionary innovations typically bring deep disruptions in their wakes. And as a flood of recent reports illustrate, fracking is indeed a disruptive revolution.

On one side are the thieves that want to cut back on production to drive the world price for oil back to its recent high levels.

Let’s start at the level of geopolitics. With barely controlled glee I note a recent Wall Street Journal report that our fracking energy renaissance is fracturing OPEC. You remember OPEC, the cartel that drove our economy to the wall with the “oil shock” of the 1970s. As oil prices continue to fall, a split has developed among OPEC states.

On one side are the thieves that want to cut back on production to drive the world price for oil back to its recent high levels. Venezuela is the leader of this fraction, and for good reason. Its particular brand of socialism has devastated its economy (as socialism is wont to do), and it has been living off its oil imports. Well, it can’t now, and as the aforementioned Bloomberg story notes, the arrogant Mini-Me of Marxist Cuba is running out of hard currency and may have to devalue its money, raise domestic gasoline prices, cut oil subsidies to other leftist states (such as Cuba), and cut imports of consumer goods. In this socialist hell, crime is exploding as quickly as inflation, and the consumer goods shortages are growing as quickly as the rioting is.

On the other side of the OPEC rift are countries such as Kuwait and Saudi Arabia, which oppose limits to production. These countries have indicated that they will respond to the drop in prices by exporting more oil. They appear to have several interlocking motives.

First, they are desperate to hold on to their worldwide market shares. The Saudis have been pushing existing customers — especially European ones — to commit to continued purchases of Saudi oil. Clearly, the prospect of the US loosening its ludicrous laws restricting the export of its own oil (which would put us in direct competition with the vile OPEC countries) is concentrating Saudi minds wonderfully. Moreover, Iraq has cut its prices to its existing European and Asian customers, desperately hoping to hold onto its global share.

Second, as a recent UK Telegraph piece explores, the Saudis clearly want to stall if not snuff out the fracking revolution. They want to force US shale production down from the current million barrels a day (bpd) to 500,000 bpd. As the article note, the last eight years of fracking have seen the US cut net its oil imports by 8.7 million bpd, the equivalent of what it was importing from Saudi Arabia and Nigeria, combined.

We now know for sure that we have virtually endless supplies of oil and natural gas right under our own soil, resources that can profitably be extracted at prices from $40 to $80 per barrel.

To what extent the Saudis and other OPEC countries can really contain America’s frolicking frackers is a matter for considerable conjecture. As another report points out, the International Energy Agency notes that only 4% of fracked oil production requires that the market hit $80 a barrel if the production is to be profitable. Most of the oil from the Bakken field (the most productive field currently being exploited in America) would still be profitable even if the price were $42 a barrel. At that price, yes, American frackers would feel pain, but nothing like the pain the Russia and the OPEC states would feel.

As Ambrose Evans-Pritchard recently pointed out, the Saudis are playing a dangerous game: “A deep slump in prices might equally heighten geostrategic turmoil across the broader Middle East and boomerang against the Gulf’s petro-sheikhdoms before it inflicts a knock-out blow on US rivals.” He quotes Harold Hamm, the main genius behind fracking, as saying the most productive shale field is still profitable at $28 per barrel. And as Evans-Pritchard adds, quoting Citigroup, the break-even cost for oil is $161 for Venezuela, $160 for Yemen, $132 for Algeria, $131 for Iran, $126 for Nigeria, $125 for Bahrain, $111 for Iraq, $105 for Russia, and $98 for Saudi Arabia.

Remember this: even if all American frackers had to halt production tomorrow (say, if oil dropped to $20 per barrel), the shale fields, along with the technology now well developed to exploit those reserves, would remain, however long the Saudis and everyone else tried to keep the price low. We now know for sure that we have virtually endless supplies of oil and natural gas right under our own soil, resources that can profitably be extracted, with even today’s technology, at prices from $40 to $80 per barrel. As the technology develops, that strike price will only go down. Any possible “knock-out blow” would knock us out only momentarily.

The third reason the Saudis and other Arab states are so desperate to keep their revenues at present levels — even if it means precipitously pumping down their known reserves — is that the autocrats in charge have been buying their citizens’ passivity with lavish welfare spending. If that ever gets cut, the citizens would probably rise up and cut the heads off the pompous princes and egotistic emirs who have so greedily gorged themselves on the wealth of their lands. As the Wall Street Journal notes, Saudi Arabia needs oil to be at $99 a barrel to balance its budget. So the current low price of oil is making the Saudis use assets from their reserves of foreign currency — which, while extensive, are not inexhaustible.

Another geopolitical change that fracking has introduced involves the Mexican oil industry. A piece in a recent WSJ notes that Mexico is foreseeing a rebirth of its own oil industry, with the aid of US technology and investment. The new president of Mexico, Enrique Peña Nieto, did something last year that no president before him had done, since Mexico nationalized its oil industry 70 years ago. Nieto got the Mexican Congress to pass a law (actually, to change the nation’s constitution) allowing private industry, including foreign industry, to help develop new production. Until now, Mexico has jealously guarded its industry, out of an excess of nationalism. While enjoying its national pride, it witnessed a decline in national revenues; but with the rise of fracking as a tool to get old wells producing again, it now anticipates a resurgence of a lucrative industry. The national oil company, Petroleos Mexicanos (Pemex), doesn’t have any expertise in fracking, but US and other countries surely do. As Joel Vazquez, CEO of DCM, a Mexican-Canadian drilling company, put it, “A boom is coming. Not a week goes by without an oil company contacting us asking about making a joint venture, or saying they’re interested in investing here.”

The UK, like Germany, is discovering that so-called Green energy is grotesquely costly.

Mexico will shortly start auctioning off leases for oil exploration. One hundred sixty-nine blocks of Mexican land will be opened for outside development, with about a third of them within 70 miles of Tampico. Most will require fracking and horizontal drilling. It looks as if BP and Royal Dutch Shell will go after the deep-water sites, while Canadian company Pacific Rubiales Energy and a new Mexican startup will focus on the shallow-water and mature onshore sites. Mexico projects an increase of half a million BPD over the next four years.

Another geopolitical impact of our fracking revolution on other countries is the subject of another recent Journal story. The surge in US oil and natural gas production — we now produce more oil and natural gas than do either Russia or Saudi Arabia — is making the British rethink their energy policy.

British billionaire James Ratcliffe, head of the petrochemical giant Ineos, is urging that the UK push fracking. To overcome NIMBY (not-in-my-backyard, anti-development sentiment), the resourceful Ratcliffe plans to offer a generous 4% royalty to property owners and a 2% royalty to municipalities that allow his company to drill fracking wells on their land.

The logic for the Brits — a most logical people, indeed — is clear. Fracking has lifted American production of liquid petroleum products over the past ten years by nearly 60% (from 7.3 million to 11.5 million BPD) and has lifted natural gas production by 30%. But the UK’s own production (of its North Sea fields by conventional drilling) has plummeted, resulting in rapidly growing petroleum imports.

The UK, like Germany, is discovering that so-called Green energy costs a lot of green; in fact, it is grotesquely costly. Because of a Green scheme, one of the UK’s biggest power plants (one that supplies 7% of the country’s power) is converting to wood pellets imported from the American South. But compared to natural gas, wood is immensely productive of carbon emissions. And the switch to wood is going to increase the electricity rate consumers have to pay by — 100%!

Of course, the prescient Ratcliffe is already facing opposition from the same fatuous fools — i.e., environmentalists — that our own energy heroes have had to face. But my guess is that the Brits, after seeing their power and tax bills rise, will see the light and finally favor fracking.

Doubtless, however, the biggest geopolitical impact of the American fracking revolution is on Russia. This is leading to what can best be termed “the Russian rage.” The Putin regime is clearly distraught about the fact that our oil and natural gas renaissance is eclipsing Russia as an energy superpower. A number of articles explore aspects of this phenomenon.

It is now obvious why Putin has seized Crimea and parts of eastern Ukraine: he wants to stop Ukrainians from becoming another major competitor in exporting natural gas to Europe.

One of them concerns the recent hubristic boast by the Russian oil tycoon and Putin puppet Leonid Fedun that OPEC’s decision to keep pumping oil and let the price drop will ensure the crash of the US shale industry. Fedun prophesied, “In 2016, when OPEC completes this objective of cleaning up the American marginal market, the oil price will start growing again.… The shale boom is on a par with the dot-com boom.”

Fedun’s claim was that when oil breaks $70 per barrel, most American fracking companies will become unprofitable and collapse, or will do so when their existing hedges (prior contracts to sell their crude oil at $90 per barrel) expire. But he made this boast when oil was still over $70 per barrel. We certainly don’t see any American fracking companies hitting the wall even with oil now in the mid-$60 range, and as indicated by the Evans-Pritchard article discussed earlier, other exporters believe most production from the Bakken field would remain profitable in the range of $40 or even lower.

Also amusing was an article in the Russian regime’s propaganda newspaper Russia Beyond the Headlines by Pat Szymczak. She writes about Ukraine, the country that the dictator Putin has invaded repeatedly and dismembered. Her argument is that Ukraine has tremendous shale gas reserves — the US Energy Information Administration estimates them at 42 trillion cubic feet, the third largest in Europe; and Ukraine’s Black Sea oil potential might exceed that of the North Sea. But these resources haven’t been developed, she claims — with evident crocodile tears! — because in the 20 years since it became independent, Ukraine has had only corrupt oligarchical regimes. And recently, when Shell Oil drilled some exploratory wells, fighting amazingly and mysteriously broke out nearby between the government and Russian separatists. This forced Shell to close out operations.

With smarmy alarm, Szymczak warns that, “Ukraine’s inability to get its act together and take advantage of its assets has created an opening likely to be filled by North America. The US has seemingly overnight moved from being an energy importer to a potentially massive exporter, at a time when Russia is struggling to maintain its position in the midst of a production decline in its prolific West Siberian fields.”

She adds that the US may be planning (as part of the sanctions) to divert to Europe some of its diesel exports currently bound for Latin America, and that the EU is apparently pushing the US to end its current ban on crude oil exports (about which more below). And one of Spain’s largest power companies has just signed a 20-year deal to import $5.6 billion in American liquefied natural gas.

Of course, this article is hilarious on many levels. It is uproariously hypocritical that this Russian propagandist should point to Ukraine as a corrupt oligarchy. What is Putin’s regime if not a corrupt oligarchy? And who does Szymczak think caused fighting to break out close enough to the Shell installation to force it to shut down, if not Putin himself? The Putin regime is funding and arming the ethnic Russian separatists. It is now obvious why Putin has seized Crimea and parts of eastern Ukraine: he wants to stop Ukrainians not only from achieving oil independence but also from becoming another major competitor in exporting natural gas to Europe.

Indeed, yet another recent piece — a major New York Times article on the wave of anti-fracking protests suddenly sweeping Eastern Europe — touches on the attempt by Russia to stop Western oil companies from fracking development in Eastern Europe. The article recounts what happened in Romania, when Chevron leased land last year to explore for natural gas. Immediately, a large group of violent “protestors” (read: Putinesque paramilitary provocateurs) showed up and started fighting with the local police. The provocateurs — obviously well-funded — were able to portray the mayor who allowed Chevron in as a traitor to rural Romanians and a sellout to American capitalism. The protestors temporarily made him flee.

Reflecting on the fact that his town never before had demonstrations, and that the moment Chevron showed up, so did a horde of vociferous demonstrators, the mayor concludes that they were a rent-a-mob paid by Russia’s state-controlled oil company, Gazprom. (The Romanian prime minister agrees with the mayor’s assessment). The protestors are, in other words, Putin’s posse, aimed at keeping Western energy companies out of Eastern Europe, which is the former Soviet Empire Putin is eager to reclaim.

What is Putin? He is a megalomaniacal narcissist who wants to be another Stalin.

The story notes that this view — that Russia’s oil arm is funding and fielding anti-fracking armies — is shared by Lithuanian authorities, who saw Chevron chased out of their country by organized violent protestors. The departing secretary-general of NATO, Anders Rasmussen, has voiced the same view: “Russia, as part of their sophisticated . . . disinformation operations, engaged actively with so-called nongovernmental organizations — environmental organizations working against shale gas — to maintain dependence on imported Russian gas.” The statement was echoed by Romanian industrialist Iulian Iancu, who sagely observed, “It is crucial for Russia to keep this energy dependence. It is playing a dirty game.” The rent-a-mob anti-fracking “protests” started three years ago in Bulgaria, which went so far as to ban fracking and cancel Chevron’s licenses.

Of course, both Gazprom and the so-called environmentalist groups heatedly deny that there is Putinesque collusion in all this. And Gazprom exec Alexander Medvedev adds the friendly warning to Europeans that they cannot possibly have a fracking revolution similar to America’s, because of the differences in geology and population density.

The NYT article’s author (Andrew Higgins) gives this view some credibility, pointing out that test wells have proven disappointing in Poland, Romania, and Ukraine. But one might reply that these were only a few wells, all drilled by Chevron, hardly the leader in the art of fracking. My advice to these countries is to ask Harold Hamm, the principal genius behind the fracking revolution, to come out and take a look.

What reasons are there to conclude that the Putin regime is behind these seemingly “spontaneous” demonstrations? Many, I would suggest. To start with, as the prescient Anca-Maria Cernea (leader of a Romanian nationalist group) noted, these “spontaneous” protests involved a coordination of groups that have no natural affinity or historical alliance, such as radical socialists and Eastern Orthodox clergy. Furthermore, the state-controlled Russian “news” media blanketed the airwaves with coverage of the protests over and over, along with warnings about ecological disasters caused by fracking.

Additional evidence is the obvious corporate interest of Gazprom. The Romans bade us ask, “Qui bono?” (“For whose benefit?”). If you want to ask why something is happening, ask in whose self-interest it lies. If Chevron (say) develops Eastern European shale fields, not only will Gazprom (and the Russian regime that controls it) lose out on that market. Eastern Europe could easily become the dominant supplier of energy to Western Europe, displacing Gazprom. Oh, and this could unify Eastern and Western Europe economically, putting the former out of reach by revanchist Russia.

Despite assurances from many of its backers that wind is so efficient that its subsidies would wither away after a few years, the subsidies are proving eternal.

Tied in with this point is another clue — a dog that isn’t barking. By this I mean that while Gazprom is itself exploring (through its Serbian subsidiary Nis) both Serbian and Romanian shale fields, there have been no demonstrations opposing Gazprom. The demonstrating dogs know who their master is. They can smell him even in the dark.

Further, as I noted in a piece not long ago, it’s old news that petro countries fund seemingly independent environmentalists to help stop America’s fracking development. The anti-fracking propaganda movie Promised Land was funded in large part by the United Arab Emirates. And Project Veritas investigative reporter James O’Keefe recently caught on tape a couple of Hollywood producers (Josh and Rebecca Tickell) and a couple of environmentalist activist actors saying they would be happy to work with Middle Eastern petro sheiks.

If American Green ideologues are willing to collaborate with those who want to keep their country energy dependent, why would anyone assume that Eastern European Green ideologues — many of whom were communists working to keep their countries part of the Soviet Empire before it collapsed — are unwilling to see their countries energy dependent? As Joan Rivers would say, “Oh, grow up!”

Finally, who controls Gazprom? Putin. What is Putin? He is a megalomaniacal narcissist who wants to be another Stalin. And what is Putin’s background? He was a career KGB agent who was trained in disinformation campaigns and in the suborning of foreign citizens to work against their own countries. Faced with the threat of the US — which he believed he had neutered because he cowed Obama and Hillary Clinton — becoming the dominant petro-power around the world, enabling the Eastern European countries to be energy independent from Russia, Putin, it is reasonable to assume, would use the tools he was trained to use.

And threatened the tyrant is. As political scientist Ian Bremmer put it recently, Putin has been “backed into a corner” by the drop in prices fracking has caused, “leaving him little option but to continue his aggression toward Ukraine and confrontation with the West.” Bremmer added, “I think that lower oil prices simply squeeze him harder, pushing him farther into a corner. He feels he has to fight as a consequence.”

The theme of Russian vulnerability is echoed by Allan von Mehren, chief analyst at Danske Banke, who said, “Russia in particular seems vulnerable [to dropping oil prices].” He notes that the big decline in oil prices in 1997–98 was a major cause of the subsequent Russian default. The reason for this vulnerability is obvious. Oil and natural gas constitute almost 70% of Russia’s exports, and fund half the country’s federal budget. The country has had to spend $90 billion of its foreign currency reserves to stop the utter collapse of the ruble, which has already dropped in value by over a third.

In sum, as fracking flourishes, look for Russia to become even more aggressive.

Turning from geopolitics to domestic policy, a recent WSJ article explains how the fracking revolution is forcing a long-needed change in America’s ban on oil exports.

Yes, believe it or not, since the Carter era of the 1970s we have restricted the export of our own domestic crude, under the delusion that by restricting the market that our domestic oil producers could sell to we would induce them — to drill for more. Despite calls from major oil companies such as Exxon Mobil for the government to end the moratorium, politicians have been reluctant to deal with populist fears that allowing our companies to sell into an international market will somehow drive up our own prices — as if there were just a fixed amount of oil in this country, and if we sold even a drop of it abroad, our own stash would be diminished.

As the fracking revolution has shown, there is no foreseeable limit to how much oil we can produce. But some oil companies are finding ways around the benighted ban. For example, BHP Billiton has made a deal to sell two thirds of a million barrels of “minimally processed” ultralight crude oil abroad without formal approval from the feds. It is selling the petroleum to the Swiss trading firm Vitol. This move — which is called “self-classification” — is likely to open the gate for many other companies to enter.

The amount of fossil fuel that lies beneath our feet is essentially infinite, and if it ever did reach a limit centuries from now, substitutions would be found.

The idea is clever. Under the decades-old law, the US allows the exporting of refined petroleum fuels (diesel and gasoline) but not of crude oil itself. However, some companies (such as Enterprise Product Partners and Pioneer Natural Resources) have prior governmental approval to export minimally processed oil (called “condensate”). BHP is classifying very lightly processed crude as “condensate,” exempt from the law. BHP is doing its light processing without explicit government approval, although the Commerce Department has been quiet about the practice.

It would be great if more companies followed BHP’s lead. That would encourage more drilling in the long term, and help stymie Saudi Arabia’s efforts to throttle our fracking industry, by making sure that our production can be sold abroad whenever we have an excess here. Of course, it would be even better if we just removed the ban on crude oil exports altogether.

As for the crony, corrupt Green energy industries (the so-called renewable energy producers, especially wind and solar), fracking is pushing them to the wall. Consider wind power. As another recent WSJ piece explains, American wind power has been subsidized for over two decades. Despite assurances from many of its backers that wind is so efficient that its subsidies would wither away after a few years — like the state in the old Soviet Union! — the subsidies are proving eternal. Wind power’s subsidy is a taxpayer gift to wind power producers. This subsidy handed these rentseekers over $7.3 billion since 2007 alone, and it will pay them an additional $2.4 billion next year.

With all subsidies accounted for, the Institute for Energy Research reckons that in 2010 (the last year for which conclusive data are available) wind power received $56.29 per kwh in subsidies, compared with only $3.14 for nuclear power and a meager $0.64 for natural-gas produced electric power. That is, wind power sucked up nearly 90 times the subsidies that natural gas power did.

In short, wind power has managed to shred billions of taxpayer dollars as quickly as it has shredded millions of birds. But this subsidy expired at the end of last year, and wind power producers are desperately trying to renew it before the Senate falls into Republican hands. It looks quite possible that in the face of plummeting oil and natural gas prices, the incoming Congress will end the subsidy once and for all. At which point, wind power will be — well, gone with the wind.

Also worth noting is a WSJ article reporting another possible target for fracking’s creative destruction. I refer to the (again) heavily taxpayer-subsidized electric vehicle (EV) industry. Its only real success has been Tesla, whose zippy, stylish cars have sold well compared to all other EVs. But as gasoline prices have dropped, so has Tesla’s stock. It’s down about 8% recently (after a dramatic rise during the last couple of years).

If oil prices remain low, or fall even further, the EV market will be threatened. And if the EPA manages to kill the coal industry, thus dramatically raising costs of electricity, the EV market will become moribund. It only exists now because of those enormous taxpayer subsidies, and it is unclear how much longer Congress will keep them.

As the Journal noted, we can already guess what the advocates of EVs and the other Green companies will start pushing for if gasoline prices continue to drop: massive new taxes on gasoline to force consumers to go Green. Elon Musk (CEO of Tesla) has already proposed taxing gasoline to make it $10 per gallon at the pump — not from self-interest, you understand, but only from a dispassionate concern for the ecosystem. He thus joins Barack Obama, Nancy Pelosi, ex-GM exec Bob Lutz, and others calling for steep gasoline taxes so that their preferred Green schemes (EVs, ethanol, biodiesel, etc.) will survive. We will see if the new Congress complies with their proposals. I rather doubt it will.

People aren’t bacteria. People consume resources, but they also produce them.

Lastly, however, I want to mention a non-material but very important effect of the fracking revolution: the creative destruction of a myth. The myth is the notion of “peak oil.” That phrase comes from the idea that any oil-producing area (be it a field, a state, or a country) will eventually reach a peak of production, then tail off, making something like a statistical bell curve.

The concept of peak oil has been around since the start of the oil era. Eminent energy analyst Daniel Yergin quotes the state geologist of Pennsylvania in 1885 as predicting that the amazing early production of petroleum was only a “temporary and vanishing phenomenon — one which young men will live to see come to its natural end.” But the notion was given a scientific patina by M. Kind Hubbard, a geologist for Shell Oil company, in an influential paper of 1956, predicting that American aggregate oil production would peak in the early 1970s, then decline forever after. It appeared that Hubbard’s theory was empirically confirmed when America’s oil production hit a peak of slightly less than 10 million barrels per day (bpd) in 1974, and started declining.

It is now clear that this theory is about to be refuted yet again. Fracking has pushed our production of oil past Saudi Arabia’s current level of 9.7 million bpd. And the International Energy Agency projects that we will overtake Russia’s production of 10.3 million bpd next year.

People still keep predicting peak oil — as Paul Krugman did in 2010, when he crowed that “peak oil has arrived.” With fracking, indeed, we will reach another peak; but very likely someone will come up with another technological improvement, maybe “smacking.” The amount of fossil fuel that lies beneath our feet is, almost surely, essentially infinite, and if it ever did reach a limit centuries from now, substitutions would be found — perhaps from the vast spread of methane hydrates that lie on the ocean floors.

The theory of peak oil is a myth, and it is just a special case of a bigger myth — Malthus’ myth. Malthus held that, sustained by resources, the members of any living species will incrp/prsquo;s federal budget. The country has had to spend $90 billion of its foreign currency reserves to stop the utter collapse of the ruble, which has already dropped in value by over a third.ldquo;minimally processedease their numbers exponentially, so that no matter how plentiful the resources, the species will soon exhaust it. So he held that while people may increase agricultural production, it will only increase arithmetically, while the population will increase exponentially, resulting sooner or later in mass starvation.

But as economist Julian Simon argued, people aren’t bacteria. People consume resources, but they also produce them. People have mouths, but they also have hands, minds, and hearts. They can find new ways of getting any resource, and new substitutions for it also, for time without end.

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Inequality: The Democrats’ Defining Issue


Those of us who have been troubled by issues such as economic decline, unemployment, public debt, healthcare, foreign policy, and federal power should know that our worries have been misplaced. President Obama now tells us that income inequality is the principal concern — the "defining issue of our time," he says. It's a timely discovery, what with America's victims of inequality looking ahead to the November congressional elections.

The Democrat Party (protector and savior of all such victims) had to choose between inequality and the unfolding Obamacare debacle. That was a no-brainer. Naturally, Joe Biden made the call, counseling that "income inequality is our issue this year." After six years of rewarding the rich and punishing the poor and middle class, newly impassioned Democrats declared inequality as their battle cry for 2014. Why not? Six months of melodramatic hypocrisy spent on attacking plutocrats is wildly preferable to six months of cognitive dissonance spent on defending Obamacare.

In a speech last December, Mr. Obama launched his new crusade against patrimonial wealth, promising to devote the remainder of his presidency to this "dangerous and growing inequality." It is a phenomenon he has observed for many years — perhaps as early as his first reading of Das Kapital. His monologues on the subject (e.g., his notorious December 2011 Osawatomie, Kansas speech) voicethe deeply felt, though tacit, theme that capitalism is to blame for the widening income gap between the rich (the bourgeoisie) and the rest of us (the proletariat). He presents his observations as evidence both of capitalism's failure and of his fervid concern for correcting its excesses. And there is what he doesn't say, what he would like to exclaim with glee: that Karl Marx was right.

It is difficult to imagine any set of policies that could punish our economy and darken our future as much as the Democrat policies have.

Because of capitalism, the president tells us, "the basic bargain at the heart of our economy has frayed." To Obama, free market capitalism is a mysterious, chaotic game in which the winners prosper through deceit and theft, allowing but a meager share of their vast wealth to trickle down to the poor and middle class. It's a "theory," he says, that "fits well on a bumper sticker," but "it doesn’t work. It has never worked." Who — apart from Vladimir Lenin, Joseph Stalin, Mao Tse-Tung, Fidel Castro, and Paul Krugman — could have put it better?

In his economic homilies, Obama excoriates capitalists who tell us that "the market will take care of everything" and that "if we just cut more regulations and cut more taxes — especially for the wealthy — our economy will grow stronger." He laments that "a family in the top 1% has a net worth 288 times higher than the typical family," while"a child born into the bottom 20% has a less than 1-in-20 shot at making it to the top." He reminds average Americans of deep frustrations "rooted in the nagging sense that no matter how hard they work, the deck is stacked against them." Marx could not have taken a more sinister view.

But the capitalism Obama decries is not free market capitalism. The latter predated his selective observations, performing marvelously well for America's first two centuries. The capitalism that Obama rails against is the patriarchal, democratic crony capitalism that politicians of his ilk (including every president from Lyndon B. Johnson to George W. Bush) created. That system — which is precariously held together by the political influence of the rich and the "fatal conceit" of central planners — has failed, and failed chronically since the advent of the "Great Society." Today, after five years of eco-socialism, Obama outshines all his predecessors. The inequality gap has become so intolerably large under his stewardship that he himself declared it as a national issue. Well, somebody had to do it.

During his 2012 reelection campaign, Obama told audiences what the weak regulation of the Bush administration had accomplished: "Insurance companies that jacked up people's premiums with impunity and denied care to patients who were sick, mortgage lenders that tricked families into buying homes they couldn't afford, a financial sector where irresponsibility and lack of basic oversight nearly destroyed our entire economy." As 2014 election campaigns begin, voters who were among Obama's cheering crowds in 2012 may ask what the strong regulation of the Obama administration has accomplished. They, and Democrat candidates, won't like the answer.

In 2007, the share of the nation’s income earned by the richest 1% was 18%. Today, that elite group's share has increased to 22%. Ninety-five percent of the income gains since Obama took office have gone to the top 1%. Yet, during that period (aka, the "recovery"), median annual household income dropped by 4.4%, the number of people in poverty increased by 6,667,000, and Democrats, with a new battle cry but still blaming George Bush, gained 100% of the nation's inequality bullshit.

The tax and regulate policies of Democrats (Obamacare, Dodd-Frank, EPA and DOE regulations, to name a few) are wreaking havoc on the very groups they are supposed to help. A March 2014 report ('The Irony of ObamaCare: Making Inequality Worse”) declared that Obamacare "threatens the middle class with higher premiums, loss of hours, and a shift to part-time work and less comprehensive coverage." It was published by a labor union — one of many angered by Obamacare. With the Dodd-Frank reforms, minorities, low-income people, and the young are being shut out of mainstream banking. The economic impact and regulatory compliance cost, estimated to be $1.9 trillion annually, will be passed on to people in the middle class, who haven't been shut out — yet.

For black Americans, the poverty rate has increased from 12% in 2008 to 16.1% today; their unemployment remains twice the rate for white Americans. According to radio talk-show host Tavis Smiley, "the data is going to indicate sadly that when the Obama administration is over, black people will have lost ground in every single leading economic indicator category."

Meanwhile, the stock market is doing well, for the rich; the S&P 500 is up 52.8% since the passage of Obamacare in March 2010. How have health insurance companies fared — companies that were allegedly jacking up people's premiums with impunity and denying care to the sick? The top five are up 100.7%. And what about banks, which were allegedly tricking families into buying homes they couldn't afford? According to a February 2014 FDIC report, their profits are at an all-time high.

Democrats argue that the inequality gap would grow wider under Republican leadership. Not to defend Republicans, but it is difficult to imagine any set of policies that could punish our economy and darken our future as much as the Democrat policies have. When it comes to the advancement of inequality, Democrats are unrivalled. Clowns could do no worse.

For black Americans, the poverty rate has increased from 12% in 2008 to 16.1% today.

Clowns would come up with better ideas than Obama's latest offerings: inequality busters such as “equal pay for equal work,” universal preschool, and raising the minimum wage. They would know that impoverished burger flippers making $7.25 an hour would remain in poverty at Obama's recommended pay of $10.10 an hour, as would the half million people who, according to the CBO, would lose their jobs as a result. Clowns would reject the assertion that women earn only 77% of what men earn for the same work. Male clowns would worry about the wholesale job losses and wage cuts that would ensue if employers acted on the idea that they are overpaying men by 23%.

Then there are Democrat anti-inequality panderisms such as the "Stop Subsidizing Multi-Million Dollar Corporate Bonuses Act," sponsored by Senators Blumenthal (CT) and Reed (RI). Can an Occupy Wall Street pleaser such as the "Use Congressional Authority and Oversight to Ensure that Appropriate Federal Agencies Fully Investigate and Prosecute the Wall Street Criminals Act" be far behind?

The policies of Democrats, however well-intentioned, have backfired. They have exacerbated inequality, a result that, after almost six years of economic stagnation, high unemployment, staggering debt, grinding income decline, etc., clowns would notice. If for no other reason than comic relief, they would reject Democrat ideas — all two of them: redistribution of wealth and regulation of everything.

Clowns would tease us with a little free-market capitalism and tickle us with our own newly discovered energy bonanza, especially the vast taboo region lying fallow beneath federal land. After all, there is no clown ideology against fossil fuels. Besides, clowns would be awestruck by the giant nodding donkeys erected on private land, producing enormous wealth and prosperity in places like Texas and North Dakota. Think of the chuckle that clowns would get from telling a burger flipper that, while he waits for Obama's $10.10 an hour to kick in, he could work at a MacDonald's for $18 an hour . . . in North Dakota. Then there's the sidesplitter involving a blue-collar guy who makes $80,000 a year driving a tanker truck full of Bakken shale oil from the Williston Basin to refineries in the South . . . because Obama won't use his pen and cellphone to approve the Keystone XL pipeline.

The rich do very well under Republican or Democrat administrations. Has it ever been otherwise? But under the Obama administration, the rich have grown extraordinarily wealthier, and the inequality gap has grown extraordinarily wider, than under the Bush administration. The stimulus, Obamacare, Dodd-Frank, EPA and DOE regulations, and other Democrat policies — all big (federal) government efforts, promising to humble the rich, uplift the poor, and strengthen the middle class — have nefariously combined to produce the opposite effect. As the mid-term elections near, "Redistribute and Regulate" bumper stickers won't make many voters think that Democrats will do any better than clowns to shrink the inequality gap. The real challenge for Democrats is not to stamp out inequality, but to escape from the dark shadow of Obama's anti-capitalism, anti-fossil fuel, eco-socialist ideology, where most candidates are discovering a "nagging sense" that "the deck is stacked against them."

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The Keystone Kops’ Kontinued Kraziness


The State Department has finally released its exhaustive study of the proposed Keystone XL pipeline, which would allow the easy transport of Canadian oil-sands production down to Texas, where it can be refined and shipped abroad.

This has to be the billionth freaking study, and for the billionth freaking time, the study showed that the project will have little if any impact on global warming. (As if to underline the point, the report was issued at a time when most of the country was battling below-freezing temperatures and massive amounts of snow.) The operative point is that this oil will be produced and used no matter what; the only question is whether it will be brought to market in a way that benefits America (with jobs, tax revenue, and so on) or in a way that benefits only other countries — mainly China.

This report is nothing if not thorough — it is 11 volumes long. Alas, however, it isn’t the end of the matter. There will be a final State Department study to see if the pipeline “is in the nation’s best interest . . .”

Duh . . . more jobs (estimated at over 40,000 high-paying blue-collar jobs), more energy independence from terrorist-loving Middle Eastern despots, higher tax revenues for the states, and safer delivery of the product . . . it seems pretty much a no-brainer.

Naturally, the major opponents of the project are the Gaia-worshipping environmentalists, many of whom have lots of money (such as San Francisco billionaire Tom Steyer) or lots of fame (such as actress Daryl Hannah), but little intellect.

The report draws no conclusions. It leaves that to the two Keystone Kops — Secretary of State John Kerry and (of course) President Obama himself.

We are in incompetent hands, indeed.

The Republicans in Congress have rightly been pushing this useless administration to finally approve the pipeline. They especially stress the need for more jobs, amid the Obama non-recovery recovery. Obama is also under pressure from the Canadian government, which is rightly tired of his low-level trade war against Canada, one of our most steadfast allies.

But then, pissing on friendly nations is one of Obama’s favorite pastimes. Just ask the Poles, Israelis, Brits . . . no, don’t ask. You don’t want to hear the shouting.

As a recent Wall Street Journal editorial notes, the alternative to moving this oil by pipeline is transporting it by rail or tanker. The State Department estimates that distributing the oil by rail and tanker results in about a 28% increase in greenhouse gas emissions; distributing it by rail to existing pipelines results in a 40% increase; and transporting it by rail to the Gulf of Mexico results in a 42% increase.

But this is logic. And Obama cares infinitely more about collecting millions of dollars in campaign cash for this year’s election than he does for logic — or the jobs of thousands of Americans, for that matter.

Speaking of campaign donations, we shouldn’t overlook the money and advice that Warren Buffett has obtained for Obama — and if the pipeline isn’t built, the oil will keep being shipped (as it has increasingly been) by rail. Buffett just happens to own one of country’s biggest railroads, one that will doubtless benefit if the pipeline remains unbuilt.

This brings up another thing Obama and his billionaire backers care little for: American lives. Moving large amounts of oil by rail increases dramatically the likelihood that there will be accidents and attendant explosions, as happened recently in Lac-Megantic, Quebec. To spell this out clearly enough so that even actresses can grasp the point, pipelines are routed through sparsely populated areas, while railways are routed through cities (because the lines carry freight and passengers as well as oil). Another “duh.”

The latest news is that Obama is passing the decision to that renowned expert on oil and pipelines, Secretary of State Kerry. This is yet another case of Obama’s legendary “lead from behind” approach to governance, and it doesn’t augur well. While the State Department maintains that Kerry will keep an open mind, he has famously written, “If we can put an end to the era of dirty fossil fuels, we can begin an era of sustainability . . . for our nation and our world.” And two years ago, when he was still a senator, he voted against an amendment favoring the pipeline.

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And We All Frack On


Several recent stories show that the amazing technology of fracking continues to transform the energy world.

First is the news out of Russia that it has begun drilling a well that aims to tap the huge Bazhenov shale formation. The Bazhenov field, in Siberia, may be the biggest shale formation in the world.

Until now, Russia hasn’t bothered with fracking, even though it has the world’s largest reserves of shale oil (and the ninth largest of shale gas), because it has immense reserves of conventional fossil fuels. But lately its conventional production has begun to stagnate.

So Russia is allowing Royal Dutch Shell and Exxon Mobil to partner with its state-owned Gazprom Neft to start the process of developing fracking operations. How quickly it can mimic the American success in this area is hard to tell — certainly, other countries with large shale reserves (such as China, Poland, and the UK) have yet to get any production going, because the technology is tricky. What Russia has going for it is that — unlike the US — Russia has a leader who actually wants to enhance fossil fuel production, rather than destroy it.

Even more fascinating is the report out of Brussels that the European Commission now wants to cut back on the “climate protection” schemes it has pushed in the past and — wait for it — embrace fracking!

Yes, apparently the Commission’s plan is to step back from its aggressively Green agenda, called “20-20-20,” set back in 2007. The plan then was to achieve a 20% drop in greenhouse gas emissions, raise the EU’s output of renewable energy to 20% of all energy consumed, and achieve a 20% increase in the EU’s energy efficiency — all by 2020. The plan now is to switch to pursuing these green energy goals only on a voluntary basis.

As regards fracking, the Commission now intends to establish only minimal rules, instead of the very strict ones it was considering.

The interesting question is whether Germany’s head Angela Merkel will continue to push for an increase in the use of renewables. She has set the goal for generation of renewable energy in Germany at 60% by 2036. Considering that after Fukushima, Merkel ordered that the German nuclear power industry be closed by 2022, and that half the plants are already shuttered, achieving the renewable goals will drive the cost of German power through the roof.

But she is running into flak from German industry. An article late last year noted that the rising energy prices in Germany and dropping prices elsewhere were beginning to put pressure on German manufacturers to start offshoring much of their operations.

I mean, this is just fascinating: when America is finally free from our current Green president, and we once again encourage domestic oil and gas production, we may find that we get back some of the heavy industry we lost to the Germans decades ago. Hell, maybe their automakers will completely relocate here.

Of course if they do, they will need new names. Instead of Bayerische Motoren Werke, might I suggest Tennessee Motor Works? And Mercedes Benz — well, “Mercedes” is so dated. We might try “Miley” (after our famous twerker-girl pop star). Perhaps “Miley Bends” would work . . .

A recent Wall Street Journal piece noted that many EU companies are moving production to the US, because of our relatively inexpensive energy — and, one might add, because at least in the half of all American states that have right-to-work laws, our labor rules are more realistic.

Finally there is a story about a start-up company called Siluria, which may possibly have solved the technological hurdles in the way of turning abundant natural gas into cheap gasoline — gasoline at about half the price of the current product distilled from petroleum.

Siluria is trying to do what so far has been impossible. While gas-to-liquids plants do exist (plants that convert natural gas to liquid fuels, including gasoline), they are very costly. It takes a lot of energy to do the conversion. For years, companies have searched for a catalyst that would make the conversion more cost-efficient, but so far, no catalyst has succeeded. Siluria has a new approach: it has built an automated system for making and trying out new catalysts. The system has already sifted through 50,000 possibilities, and the company feels that the performance of the catalyst currently in use at its experimental conversion plant justifies opening two larger-scale plants to prove to investors that it has a commercially viable approach.

A number of other companies are trying to find a commercially attractive way to convert natural gas to liquid fuels — none of which, please note, receiving the lavish funding accorded Obama cronies’ multitudinous green energy companies (most of which have failed).

In fact, the whole fracking revolution was entirely the creation of a handful of brilliant entrepreneurs in the private economy, operating in the face of the administration, not with its help. Over the decades, the role of the federal government in confronting our energy dependence on the Mideast has been one of trying to pick winning technologies, and failing every time. Not just failing, but failing at a cost to taxpayers of billions of dollars, all the while impeding private enterprise.

It is time just to end the idiotic Federal Energy Department, and let the free market solve the problem.

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Sand Shortage


Milton Friedman's notion that "If you put the federal government in charge of the Sahara Desert, in five years there'd be a shortage of sand," has been borne out for decades in US energy policy. Sitting on top of the world's most prolific supply of oil, coal, and gas, every president since Richard Nixon has promised energy independence. The result: an energy dependence that led to the September 11 attack by Osama bin Laden.

With terrorism financed by oil revenues (Saudi Arabian, for the Sunni variety, and Iranian, for the Shiite variety), fretting terrorists evidently anticipated an oil shortage. Who could blame them? When the oil ran out, they would be left with sand. Disconcerted, therefore, by America's voracious energy appetite, bin Laden complained, "Muslims are starving to death and the United States is stealing their oil." That, and our military presence in the Arabian peninsula, provoked his famous 1998 fatwa, exhorting God-fearing Muslims "to kill the Americans and plunder their money wherever and whenever they find it."

But Muslims were not starving because of US oil theft. We paid a fair market price of untold trillions (plus an annual premium of $30–60 billion in taxes to protect the Persian Gulf, even before 9/11). Hunger — along with poverty, ignorance, disease, violence, and despair, to name a few other maladies common to the region — was the result of Muslim governments put in charge of the oil fields.

In the early 1900s, when oil was first discovered in the Middle East, the Muslim world had been in decline from its former greatness for over 100 years. Defying the principles of free market capitalism, and at least a few laws of probability, Muslim political leaders managing Muslim oil — the greatest single source of naturally conferred, easily accessible wealth in the 20th century — extended the decline for another 100 years.

Who would have thought that decades of brutal, totalitarian police states, run by secular tyrants, would fail to restore the tremendous successes Muslims had achieved in the glory days of AD 600–1500?

The descent of Muslim military power, economic strength, and scientific leadership began, ironically, around the time the American republic was born and Adam Smith published The Wealth of Nations. The subsequent adoption of democracy and capitalism by the US and European nations produced immense prosperity and an ever-widening gap between the West and the Muslim world. Today, by any meaningful measure of achievement, Muslim countries lag dramatically behind the West. During a 2010 interview on Al-Arabiya Television, Saudi scholar, Ahmad bin Baz (the son of the former Saudi grand mufti, Abdul Aziz bin Baz), explained,

We Muslims have found ourselves at the tail end of the world's progress. The Muslims are always on the receiving end, and their only role in life is to receive from others. Western society has become the society of innovations. It is Western society that produces and adapts itself to the changes of life, whereas we Muslims have become passive recipients of all these innovations, and all we do is sit down and ponder whether these innovations are permitted or forbidden by Islam.

Muslim leaders are no doubt perplexed by their abysmal failure to rejuvenate Islamic civilization. Who would have thought that decades of brutal, totalitarian police states, run by secular tyrants, would fail to restore the tremendous successes Muslims had achieved in the glory days of AD 600–1500? Why has the terrorism of Islamists (i.e., religious tyrants from organizations such as al Qaeda, Hezbollah, the Taliban, the Muslim Brotherhood, and the nation of Iran) been so slow to advance the Muslim cause? What other strategy might invigorate Muslim innovation, should corruption, cronyism, intolerance, bigotry, homophobia, and misogyny fail?

Give up? Here's a clue: it involves neither democracy nor capitalism. Instead, some Islamist intellectuals have decided that the future of Islam lies in a global Caliphate. They even have annual conferences for indulging in the fantasy. A promotional video for "Caliphate Conference 2012" proclaimed that "the Islamic Caliphate is the only social and political system that has the right solutions to the political, social and economic problems of humanity" and asserted that "the relentless decline of Capitalism has begun. The time has come to fight against poverty. Time to obliterate the injustices. Time for the correct system."

While the precise architecture of the "correct system" is a little sketchy, many of its core concepts — common bonding tenets, mandatory for all self-respecting Islamist intellectuals — are well known. These include (a) totalitarianism, masquerading as religion, (b) absolute rule by Sharia law, the legal codification of the Quran, (c) hatred of Jews, (d) blame to Jews (for caliphate failures), and, of course, (e) death to Israel.

When (or if) the Caliphate begins its transition from a pan-Islamic state to a global empire, the failures produced by the spreading dystopia and cultural havoc will be too numerous and varied to indict Jews alone. Thus, Islamists can be expected to add Christians and other infidels to (d) above.

As a surprise to Israel (not to mention the residents of cities such as Mecca, Damascus, and Cairo), Jerusalem will be the capital of the Caliphate. And as a surprise to capitalism (not to mention the billions of people it has lifted from poverty, more people than any other economic system in the history of mankind), it will be blamed for the world's poverty. Add “Capitalism” to (c) and (d).

A Sunni (al Qaeda) version of the Caliphate is scheduled to be victorious by 2020, right after four years of the "final battles against nonbelievers." However, given the pace at which Iran is developing its nuclear weapons, a Shiite version may be established sooner — unless, of course, al Qaeda steals its nuclear capability from a crumbling and sympathetic Pakistan. Picking a winner is troublesome, as is the idea of a Shiite theocracy having a nuclear bomb among its weapons and a “Death to America Day” among its holidays. Foreign policy experts tell us that Iran seeks its nuclear capability to gain a seat at the table of power. On the other hand, says former CIA director James Woolsey, al Qaeda simply wants to "blow the table up." It's a safe bet that “America” can be added to (c), (d), and (e).

Osama bin Laden was correct to worry about the conservation of oil in a desert region.

America's hedonistic culture mocks the "purity" of Mohammed-era ideals. The conspicuous progress of American capitalism undermines Islamist efforts to reconcile Islam with modernity. To the more eager Caliphate builders, the salve for this incessant irritation might be an EMP attack. A small (1 KT) nuclear weapon or two, detonated at an altitude of as low as 40 km, would destroy our infrastructure (power, communications, transportation, etc.) and, as a bonus, instantaneously fry our blasphemy-spewing smartphones, TVs, radios, and other electronic devices. According to the 2008 “Report of the Commission to Assess the Threat to the United States from Electromagnetic Pulse (EMP) Attack,” its effect would be “something you might imagine life to be like around the late 1800s" — not the 7th century, but a start.

If the Islamists prevail, their caliphate will be the first since the previous Islamic Caliphate was dissolved by Kemal Atatürk in 1924, following the defeat of the Ottoman Empire in World War I. Islamists are nothing if not ambitious, and patient.

That patience is about to be tested. Thanks to capitalism, America is now in the early stages of an oil and gas boom, despite all efforts by our federal energy intellectuals to stifle fossil fuel production. As Gary Jason pointed out in A Totally Fracked Planet, "We will reach energy independence in the not too distant future, thanks not to any corrupt crony green energy industry (solar, wind, ethanol, or biodiesel) but to the vast resources of shale oil and gas made available by advanced fracking technology." Privately owned US companies, employing innovative drilling techniques and private capital, on mostly private land, have made the US the fastest growing oil and natural gas producer in the world. The US is expected to be independent of all foreign oil, except for oil imported from Canada, by 2018.

During the last ten years, capitalism has been turning our long dependence on Middle East oil into little more than a bad memory of the 40 years of feckless policies concocted by our federal energy stewards. And it will turn the dream of Islamists into a nightmare. Try running a totalitarian state on oil revenues, when Brent crude drops from today's price of $110 per barrel to $70 by the end of the decade. What will Caliphate Conference 2020 have to say about world domination when dwindling Saudi Arabian and Iranian terrorism contributions squeeze prospective caliphate budgets to nothing?

Osama bin Laden was correct to worry about the conservation of oil in a desert region. He may have pondered over the use of sand when the oil beneath it ran out. Perhaps he recognized that excessive reliance on oil was the real source of the Middle East plight — that all the while, Muslims were more dependent on their oil than Americans. If Muslim leaders meted out freedom and opportunity, instead of crumbs from the table of oil revenue, economic diversity would result. Industries such as manufacturing, banking, tourism, and agriculture would expand and thrive. Who knows? As America becomes the new Middle East, the Middle East could become the next Silicon Valley, creating thousands of companies, millions of jobs, billions in tax revenues, and trillions in profits to shareholders— as it did here, in capitalist America. Why not? Unless you are an Islamist, there is no reason to believe that Middle Eastern Muslims are not as intelligent, industrious, and ambitious as American Muslims.

Meanwhile, according to an NBC News series on the economic and political ramifications of the American oil and gas bonanza, things will be looking up in America. Lower energy costs are making American businesses more profitable and competitive. New and better jobs are being created. With lower product prices and rising incomes, our standard of living will increase. And we will buy unprecedented quantities of any blasphemy-spewing, Islamist-mocking semiconductor devices Silicon Valley can invent. Semiconductors, by the way, are made from silicon, which is, in turn, fabricated from silicon dioxide — aka, sand.

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